The outgone week saw the dollar retain its weakness. The US treasury secretary, pledging his support for a weak dollar at the World Economic Forum, n the course of the week, ticked off investors as they sold down on the dollar after the statement was made. USD/CAD closed the week at 1.2312, losing 1.5% week on week. The dollar remains weak despite rising yields, this is contrary to the norm. Rising yield are usually accompanied by a strong currency, as high interest rates attract foreign investors, hence a high demand for the currency involved. This divergence highlights waning interest in US debt instruments, concerns about rising deficits and long-term debt sustainability may be fueling the sell off of US treasuries, this coupled with talks of China and Japan ( the biggest investors in US Treasuries) cutting back on their purchases, accounts for the rise in yields.The coming week will be a very busy one for the USD, the release of PCE (the Fed's preferred measure of inflation) on Monday, the first FOMC meeting of the year and employment data later in the week will set the tone for the dollar.
The pound had a sterling performance in the outgone week gaining 2.25% against the dollar. This comes on the back of positive employment and GDP data released in the course of the week. Improved GDP numbers feeds off positive net export given the depreciation of the pound. The ability of UK & EU negotiators to agree on their terms of divorce in December, calmed a lot of nerves. The Bank of England Governor, noted at the World Economic Forum last week that greater clarity on Brexit could help the UK economy "recouple" with the rest of the world. The hope of a smooth brexit sail saw the pound rise to a high of 1.43/USD in the course of the week. On the data front, the coming week will see the release of construction and manufacturing PMI.
The Euro followed in the stride of the pound as it rose to a high of 1.2538 against the dollar. ECB meeting held in course of the outgone week saw Mario Draghi reassure investors of the ECB's intentions of winding down its expansionary policies later in the year. This gave the Euro a boost as it gained 2% against the dollar on a week on week basis. GDP & CPI data from all across Europe will be in this week together with final manufacturing PMI. Forecast show analyst expect core CPI in the Euro-area to inch up to 1% from 0.9% the prior period & unemployment rate to stay the same at 8.7%.
Gaining 3.5% against the dollar so far in 2018, the Aussie has been able to take full advantage of the weakness of the greenback. Given weak fundamentals, analyst believe the AUD's rally is unsustainable. Falling iron-ore prices, decelerating growth of the Chinese economy and low interest rate all point to a weak Aussie. CPI data is expected in this week, forecast show analyst expect a rise to 0.7% in the fourth quarter as against 0.6% in the prior quarter. Building approvals are expected to dip to 7.5% from the 11.7% released earlier this month. Higher than expected data could see the Aussie rally this week.
On the commodities side, Gold remains a delight reaching a high of 1,365.63/dollar in the prior week. A bit of consolidated on the yellow metal is expected in the new week as investors take profit on gains. Oil prices maintain their high with Brent crude trading at $70.47.
